November 13, 2019 / 6:11 PM / a month ago

Deutsche Telekom says U.S. deal hedges pushed up debt in third quarter

FILE PHOTO: The logo of Deutsche Telekom AG is silhouetted against the sun and clouds atop of the headquarters of German telecommunications giant in Bonn, Germany, February 19, 2019. REUTERS/Wolfgang Rattay

BARCELONA (Reuters) - Deutsche Telekom (DTEGn.DE) slipped out of its comfort zone on leverage in the third quarter due to paper losses on hedges taken out to pay for U.S. unit T-Mobile’s (TMUS.O) acquisition of Sprint (S.N), CEO Tim Hoettges said on Wednesday.

The $26 billion deal was struck a year and a half ago but has yet to close, leaving the German-led group exposed to adverse moves in financial markets on insurance that it took out to cover a third of the cost.

“The net debt was higher than we thought - over 3 billion euros ($3.3 billion) higher,” Hoettges told the Morgan Stanley European TMT Conference in Barcelona, attributing the losses to a strong dollar and declining U.S. interest rates.

Deutsche Telekom’s net debt rose to 78.8 billion euros in the quarter, lifting its leverage ratio to 2.8 times core earnings. That is above a target range of 2.25-2.75 times that underpins its investment-grade credit ratings.

The Bonn-based group cut its planned dividend for 2019 to 60 cents to address the financial burden from the U.S. deal as well as higher-than-expected costs to buy spectrum for and build 5G mobile networks.

Hoettges said the slippage would be temporary: “By the end of the year we will be comfortably back in the range that we have indicated to rating agencies,” he said.

Reporting by Douglas Busvine; Editing by Elaine Hardcastle

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